Meredith Corporation (MDP - Analyst Report) reported earnings of 67 cents per share (including 2 cents related to acquisition of broadcast assets) for the second quarter of fiscal 2014. The earnings were a penny ahead of the Zacks Consensus Estimate and within management’s guided range of 65–70 cents.
However, on a year-over-year basis, earnings fell 15.2%. Earnings were mainly driven by the relatively strong performance of its Local Media Group segment in a non-election year.
Going forward, management expects third-quarter fiscal 2014 earnings per share in the range of 63 cents to 68 cents. Moreover, for fiscal 2014, the company reiterated earnings projections at $2.60–$2.95 per share excluding the impact from T.V stations acquisition-related costs. The Zacks Consensus Estimate for the third quarter and fiscal 2014 are pegged at 77 cents and $2.83, respectively.
Revenues & Margins
Total revenue for the quarter fell 1.8% year over year to $354.0 million, resulting from a 10.9% decline in advertising revenues to $193.5 million, partly offset by a 0.5% rise in Circulation revenues to $67.7 million and 21.9% increase in other revenues to $92.8 million. However, total revenue came in line with the Zacks Consensus Estimate.
For third quarter of fiscal 2014, total revenue is anticipated to range from flat to a marginal fall.
Total operating expenses for the quarter dropped 0.3% to $302.1 million owing to a decrease of 1.4% in production, distribution and editorial costs, partly offset by a 0.2% rise in selling, general and administrative expenses.
Operating profit fell 9.7% to $51.9 million while operating margin contracted 120 basis points to 14.7%.
Meredith’s National Media Group revenues marginally grew year over year to $249.7 million while the segment’s operating profit increased 26.6% year over year to $28.1 million on the back of solid performance of Meredith's parenthood and food brands, including Allrecipes, Parents and FamilyFun.
Meredith now projects National Media Group advertising revenues to fall in low single digits in the coming quarter.
Meredith’s Local Media Group revenues fell 6.1% to $104.4 million due to substantially lower political advertising revenues, partly offset by a 9.8% increase in non-political advertising revenues to $78.3 million and a 78.7% increase in other revenues to $25.4 million. The segment’s operating income also decreased 21.2% to $35.2 million.
Management now expects Local Media Group’s revenues to increase in the mid-to-high single-digit range during the third quarter of fiscal 2014.
Meredith’s Growth Catalysts
Meredith, which competes with Martha Stewart Living Omnimedia Inc. , boasts a strong portfolio of women’s magazines, which helps it to gain market share. Further, the company remains focused on bolstering advertising revenues, primarily in the digital space and is increasingly concentrating on brand licensing, marketing services and e-Commerce to counter possible economic downturns going forward.
In Dec 2013, in order to enhance its television portfolio, Meredith signed a deal to acquire television stations in Phoenix and St. Louis from Gannett Co. Inc. (GCI) and Sander Media LLC for $407.5 million in cash. The stations that Meredith is acquiring include KTVK, an independent station in Phoenix, KASW, the CW affiliate in Phoenix and KMOV, the CBS affiliate in St. Louis.
The deal, which is expected to conclude in the first half of calendar year 2014, will prove accretive and will generate revenues of $105–$115 million a year after completion of the transaction, thereby increasing earnings by 16–18 cents per share.
In Nov 2013, Meredith launched Allrecipes magazine, the media industry's most important print extension of a digital brand. Advertising interest has been strong, with Procter and Gamble, Hershey as well as General Motors making commitments.
Meredith is also an ideal pick for yield-seeking investors. The company, through its total shareholder return (TSR) strategy, intends to boost shareholders’ value through dividend payouts, share repurchases and strategic investments in business to drive growth. Since the implementation of this strategy two years back, the company has hiked its dividend by 60% and initiated a $100 million share repurchase program.
The company has a history of regularly paying dividends for 66 years. Over the last two decades, it has increased its dividend consistently, which now stands at $1.63 per share.
Moreover, the company constantly seeks to venture into new arenas and add alternative revenue generating channels through strategic acquisitions and collaborations. Meredith’s contract with Wal-Mart Stores Inc. (WMT - Analyst Report) includes an expansion of the Better Homes and Gardens branded home decor and garden program at Wal-Mart stores across the United States and Canada.
The company’s brand licensing revenues rose nearly 30% on account of continued robust sales of more than 3,000 SKU's of Better Homes and Gardens' approved products at more than 4,000 Wal-Mart outlets across U.S.
Other Financial Details
Meredith ended the quarter with cash and cash equivalents of $25.9 million, total debt of $340 million and shareholders’ equity of $871.7 million. For the first half of fiscal 2014, the company has bought back 1.2 million shares.
As of Dec 31, 2013, Meredith had $22 million worth of shares remaining under its existing share repurchase authorization. The company’s leverage ratio (debt to EBITDA) was 1.3 to 1 for the 12 month-period ended Dec 31, 2013.
Currently, Meredith carries a Zacks Rank #2 (Buy).